Before : |
M. J. Thompson, Esq., Commissioner, and Jurats Opfermann and Berry |
IN THE MATTER OF THE REPRESENTATIONS OF AGUIDILLA INVESTMENTS LIMITED,
FINTAGRON INVESTMENTS LIMITED, GINELLA INVESTMENTS LIMITED,
LANDER INVESTMENTS LIMITED, LANGTOFT INVESTMENTS LIMITED,
MCWHINNIE INVESTMENTS LIMITED, MELBROOK LIMITED, MITFORD LIMITED,
PENN INVESTMENTS LIMITED, MARANDELLIS INVESTMENTS LIMITED,
PIEDMONT LIMITED AND HAREFIELD HOLDINGS LIMITED
AND IN THE MATTER OF ARTICLE 115ZA OF THE COMPANIES (JERSEY) LAW 1991 (AS AMENDED)
Advocate R. Spencer-Tucker for the Representors.
judgment
the COMMISSIONER:
1. This is an application by the above named Representors pursuant to Article 115ZA of the Companies (Jersey) Law 1991 ("the Companies Law") seeking orders from the Royal Court that the distributions made by each of the Representors should be treated as if they had been made in accordance with Article 115 of the Companies Law. Each of the Representors is administered by Zedra Trust Company (Jersey) Limited ("Zedra"). Zedra was formerly known as Barclays Private Bank and Trust Company ("BPTL") at the time of the distributions which are the subject of the Representations.
2. This application follows on from the judgment of the Deputy Bailiff in the matter of Crystal Lake Investments Limited and Another dated 14 April 2021, reported at [2021] JRC 104.
3. The relevant provisions of Article 115 are set out in that judgment at paragraph 7 which we adopt. In particular directors, who are resolving to authorise a distribution, must make a Statement of Solvency that meets the requirements of Article 115(4) as follows:
"(4) The statement shall state that the directors of the company who are to authorize the distribution have formed the opinion -
(a) that, immediately following the date on which the distribution is proposed to be made, the company will be able to discharge its liabilities as they fall due; and
(b) that, having regard to -
(i) the prospects of the company and to the intentions of the directors with respect to the management of the company's business, and
(ii) the amount and character of the financial resources that will in their view be available to the company, the company will be able to -
(A) continue to carry on business, and
(B) discharge its liabilities as they fall due, until the expiry of the period of 12 months immediately following the date on which the distribution is proposed to be made or until the company is dissolved under Article 150, whichever first occurs."
4. If directors do not make the statement required by Article 115(4), thus making any dividend declared unlawful, the Royal Court nevertheless has power to treat distributions as if they had been made in accordance with Article 115 of the Law. This power is found in Article 115ZA as follows:
"115ZA Order treating distribution as made in accordance with Article 115
(1) Where a distribution has been made by a company in contravention of Article 115 and the company makes an application to the court, the court shall make an order that the distribution is to be treated for all purposes as if it had been made in accordance with that Article if the court-
(a) considers that all of the conditions specified in paragraph (2) are met; and
(b) does not consider that it would be contrary to the interests of justice to do so.
(2) The conditions referred to in paragraph (1)(a) are that -
(a) immediately after the distribution was made the company was able to discharge its liabilities as they fell due;
(b) at the time when the application is determined by the court the company is able to discharge its liabilities as they fall due; and
(c) where the distribution was made less than 12 months before the date on which application is determined, the company will be able to carry on business, and discharge its liabilities as they fall due, until the end of the period of 12 months beginning with the date on which the distribution was made.
(3) No notice of an application under paragraph (1) need be given to any creditor of the company, or any other person, unless the court otherwise directs."
5. At paragraph 15 of the Crystal Lake judgment, Deputy Bailiff MacRae noted a statement by Zedra's counsel as follows:
"Zedra also volunteered to the Court that the decision in this case has implications beyond the circumstances of these two companies, as there are a significant number of companies currently or previously administered by Zedra, and Barclays prior to it, where similar issues to those which arise in this matter also require consideration."
6. In the Crystal Lake case at paragraph 21, the Court noted Zedra's argument that the question of solvency was carefully considered at the time distributions were made. However, the Court did not accept that the Statement of Solvency required by Article 115 had been made. This led the Court to state at paragraph 22 as follows:
"22. It may well be that the directors were satisfied of the solvency of the companies when making the decisions that they did which are reflected by the Category A minutes but the members of the Court were satisfied that it could not be said that there was any solvency statement as required by Article 115 in relation to these five dividends. Accordingly, we ordered that, pursuant to Article 115ZA those dividends be treated as made in accordance with Article 115. In this regard we were satisfied that the "historic" and "current" solvency tests under Article 115ZA(2)(a) and (b) were and are met."
7. The Court then granted the relief sought under Article 115ZA.
8. The present applications are therefore brought as a result of Zedra reviewing which companies BPTL was administering (and which were now administered by Zedra) which had adopted the same approach that was held by the Royal Court in Crystal Lake, which did not comply with the terms of Article 115. A further twelve companies have been identified who are the Representors making this application.
9. The companies are as follows:
(i) Aguidilla Investments Limited ("Aguidilla") in respect of one distribution made on 2 December 2008;
(ii) Fintagron Investments Limited ("Fintagron") in respect of one distribution made on 27 April 2009;
(iii) Ginella Investments Limited ("Ginella") in respect of nineteen distributions made between April 2008 and March 2010;
(iv) Lander Investments Limited ("Lander") in respect of a distribution made on 30 July 2009;
(v) Langtoft Investments Limited ("Langtoft") in respect of eight distributions made between 9 April 2008 and 10 March 2010;
(vi) McWhinnie Investments Limited ("McWhinnie") in respect of a distribution made on 24 July 2009;
(vii) Melbrook Limited ("Melbrook") in respect of a distribution made on 14 January 2009;
(viii) Mitford Limited ("Mitford") in respect of a distribution made on 14 January 2009;
(ix) Penn Investments Limited ("Penn") in respect of a distribution made on 27 January 2009;
(x) Marandellis Investments Limited ("Marandellis") in respect of three distributions made in 2008;
(xi) Piedmont Limited ("Piedmont") in respect of fourteen distributions made between May 2008 and March 2010; and
(xii) Harefield Holdings Limited ("Harefield") in respect of thirteen distributions made between November 2008 and February 2010.
10. With the permission of the Court, the applications by each of the above companies were all heard at the same time because the essential reason for them was the same. However for each company, what was produced was a separate Representation, and a Statement of Solvency that complied with the conditions in Article 115ZA(2). Each Statement of Solvency confirmed that following the relevant distribution, the relevant Representor was able to discharge its liabilities as they fell due, and that the relevant Representor was able to continue to carry on business. Each Statement of Solvency also confirmed that the relevant Representor at all times had since been solvent, and having regard to the latest set of financial statements remained solvent and was able to discharge its liabilities as they fell due. However for Piedmont and Harefield, they were only solvent on a cash-flow basis and not on a balance sheet basis.
11. Each Statement of Solvency was supported by an accountant's report from an independent accountant, Mr Alex Adam of Teneo Financial Advisory Limited.
12. Each Representation was also supported by an affidavit of Jamey Dwyer, an authorised signatory of Zedra Corporate Officers (Jersey) Limited and Zedra Directors (Jersey) Limited who act as the current corporate directors of each of the Representors.
13. In relation to the twelve Representations, they were broken down into three categories as follows:
(i) The simple category which was described as relating to companies which made company minutes for each distribution and where there was no issue in relation to the balance sheet or cashflow solvency of the company at the time or of the distributions, or at the time of the application to Court. This covers the companies listed at paragraphs (a) to (i) above;
(ii) The discrepancy category related to the application by Marandellis, where company minutes for one of the three unlawful distributions could not be located. In relation to Marandellis however, there was no issue as to its balance sheet or cashflow insolvency as set out in the affidavit of Mr Dwyer and the opinion of Mr Adam; and
(iii) The balance sheet insolvent category - this category related to the applications by Piedmont and Harefield, where the company minutes for certain distributions could not be located, and at the time of all the distributions the companies were balance sheet insolvent. However in relation to these companies, there was evidence that the companies were able to pay their debts as they fell due at the time of the distributions and therefore the companies were cashflow solvent and they remained cashflow solvent.
14. In each of the affidavits filed in support for each of the Representors, Mr Dwyer explained that the process of generating documents when preparing for distribution was automated based on software called Navision, which was used (and is still used by Zedra) at the time the relevant distributions were made. At section 6 of each affidavit, Mr Dwyer set out a detailed explanation of the process adopted in making distributions and the reliance on the Navision software. We were grateful for his explanation. We were also reassured that the processes now applied have been altered so that statements of solvency are now produced for any declaration of a dividend pursuant to Article 115.
15. Following the Crystal Lake judgment, Zedra reviewed with the input of legal advice how to remediate the issues arising from its then use of the Navision system. This review has led to the present applications.
16. Mr Dwyer accepted that it had taken some time to bring these applications and provided the following explanation for the delay which we accept:
"7.4 The Court will note that it has taken some time to bring the current application after the 2021 Judgment. In an ideal world the directors of the Representor would have sought to regularise the position with regards to the Distribution sooner. However, the practical reality is that it has taken a long time for the Zedra administrators to have sufficient administrative capacity to dedicate the appropriate resources in order to address this issue comprehensively. The impact of COVID-19 and of Russian-related sanctions, together with the responsibilities of normal day-to-day operations, have largely monopolised the focus of the Zedra administrators for a significant period of time. Accordingly, although there has been some delay in bringing the current application, this has been due to matters largely outside the Representor's directors' control. Furthermore, I do not consider that any prejudice has been caused to any parties (such as the creditors of the Representor) by the delay."
17. For each of the applications, Mr Dwyer also deposed as follows:
"7.5 The directors (and the authorised signatories for those directors) of the Representor are now fully aware of the requirements under the Law when making a distribution. Having reviewed subsequent distributions for the Representor, I confirm that the necessary formalities were followed for each distribution. It is therefore highly unlikely that similar issues to the ones set out in this Representation will arise again in the future."
18. For each of the nine companies falling within the simple category, we have considered carefully the detailed evidence supplied for which we are grateful, and for all of the Representations falling within this category we were satisfied that the requirements of Article 115ZA were met.
19. For the application in respect of Marandellis Investments Limited, for the third distribution made on 31 December 2008 (which was much smaller than the previous distributions made), neither Marandellis nor Zedra could trace any minutes. However, it was clear from the ledgers maintained by Zedra for Marandellis that this distribution had been made. It was therefore contended that it was highly likely that Zedra (then operating as BPTL) would have used the same process for this distribution as for the other distributions it had made.
20. This led to the submission that despite the uncertainty as to whether board minutes were ever produced for certain distributions, as long as the requirements in Article 115ZA were met, then any distributions made could be ratified.
21. On the facts of this case, we accepted that submission in relation to Marandellis. This was because there was other evidence recording that a distribution had been made. However, it is important that all entities administering Jersey companies and providing directors should ensure that proper records of minutes are kept, and in the future a lack of minutes, if accompanied by other missing documentation, may mean that an entity is not able to fulfil the requirements of Article 115ZA. A failure to keep minutes is a criminal offence under Article 98 of the Companies Law
22. In relation to the balance sheet insolvent categories (Harefield and Piedmont), it was submitted that the relevant test was whether they could pay their liabilities as they fell due, not whether their assets exceeded liabilities at the time of each distribution.
23. We have set out this because we were informed that the reason why both Harefield and Piedmont were balance sheet insolvent was because of shareholder loans from the trustee of the relevant trust owning Piedmont and Harefield. The accounts prepared for each of Harefield and Piedmont (which were prepared shortly after the end of the relevant financial year in question), each contained statements that the shareholder had indicated that it would continue to provide financial support to the relevant company for the foreseeable future. In both cases, the companies were owned by trusts governed by Jersey law at the time of the distributions and BPTL was the then trustee of the trust in each case as well as carrying out the administration of the companies falling within this category. The directors approving the accounts were also directors of the trustee and were therefore satisfied that they could rely on the assurances from the shareholder. The accounting records of the two companies also showed (admittedly with the benefit of hindsight) that each company had in fact always been able to pay any debts as they fell due and that there had been no demand by the shareholder of either company for repayment of any shareholders loan. Mr Adam in his analysis had reached the same conclusion. We were therefore satisfied that the requirements of Article 115ZA(2)(a) were therefore met for Harefield and Piedmont.
24. The evidence in support also referred to the directors relying on a shareholder's letter when it provided the requisite Statement of Solvency for the purposes of Article 115ZA(2)(b). Having reviewed these letters, we were satisfied that they did indeed permit the directors to make the requisite required Statement of Solvency for the purposes of Article 115ZA(2)(b).
25. The other issue in relation to Piedmont and Harefield was also the question of missing minutes. For the same reasons that we accepted that we could make the required declaration under Article 115ZA in respect of Marandellis, we also concluded that we could make the same declaration in respect of missing minutes for Piedmont and Harefield.
26. Accordingly, we made the orders sought for each of the Representors pursuant to Article 115ZA.
27. We also ordered that Zedra would meet the costs of each application personally which it had agreed to do as part of the applications.
Authorities
Companies (Jersey) Law 1991.
Crystal Lake Investments Limited and Shawne Lake Enterprise Limited [2021] JRC 104.